China and US are not swimming in the sea of troubles but are fishing for deals

Rare Earths as Strategic Ground, Not Battleground

The rare earth sector has long symbolized the asymmetrical interdependence between China and the U.S. China accounts for nearly 70% of global rare earth mining and over 85% of refining. The U.S., despite its technological prowess, remains critically dependent on these materials for its aerospace, defense, electric vehicles, and electronics industries. Yet, in mid-2025, the two countries announced a breakthrough: a bilateral understanding on stabilizing rare earth supply chains, improving transparency, and reducing unilateral export controls.

This agreement is not just a trade pact—it is a tacit admission of economic realism. The U.S. cannot build its green energy and semiconductor ambitions without some reliance on Chinese capabilities, while China cannot afford to alienate its biggest commercial counterpart when its own economy is contending with property crises, youth unemployment, and declining global trust in its regulatory framework.

Instead of broad-brush hostility, Washington and Beijing are now moving toward sectoral compartmentalization. This means dealing with trade irritants in discrete areas—such as EVs, semiconductors, green tech, and pharmaceuticals—without letting geopolitical disagreements derail the entire bilateral economic relationship.

This pragmatic logic has been brewing for years. Treasury Secretary Janet Yellen’s 2023 and 2024 visits to Beijing laid the groundwork by proposing what she called “a small yard with a high fence”—acknowledging that certain technologies would be protected on national security grounds, while other commercial engagements could proceed. Chinese Premier Li Qiang’s reciprocal call for “stable expectations” echoed a similar ethos: let both sides compete, but not cascade into systemic decoupling.

The rare earth deal is thus a proof of concept. It shows that both powers, despite deeply entrenched differences—from Taiwan to human rights to the South China Sea—can agree on mutual gains where the costs of conflict are simply too high.

Following the rare earth agreement, several sectors stand ripe for similar treatment:

1. Green Technology: Both economies have overcapacity in electric vehicles and solar panels. Instead of tariff escalation, there is room for joint production standards, recycling agreements, and cross-licensing of clean energy patents.

2. Pharmaceuticals and Medical Supply Chains: The COVID-19 pandemic exposed how dangerously thin global medical supply chains had become. A U.S.-China accord on mutual certification or pandemic preparedness can be low-cost, high-impact diplomacy.

3. Artificial Intelligence and Quantum Governance: Although contentious, frameworks for AI safety—modeled on nuclear arms control—may emerge from track-two dialogues involving scientists and ethicists from both countries.

4. Maritime Code of Conduct: Even in sensitive areas like the South China Sea, the two sides could back ASEAN-led efforts to finalize a code of conduct, indirectly lowering tensions through multilateral instruments.

Economic Interdependence Is Not Dead—It Is Mutating

Many assumed that the Trump tariffs, followed by the Biden administration’s export controls and industrial policy subsidies, had killed off U.S.-China economic interdependence. But this is a misreading. What has occurred is a mutation, not a decoupling. Companies from both sides are diversifying supply chains—derisking rather than disengaging. Apple, Tesla, Nvidia, and Qualcomm continue to rely heavily on the Chinese consumer and manufacturing base, even as they shift portions of their value chains to Vietnam, India, and Malaysia.

The rare earth agreement confirms that some sectors—where mutual dependency is highest and the barriers to self-sufficiency are steepest—will serve as the new nodes of compromise. Each successful deal serves to anchor the broader relationship, even as the tides of rivalry rise elsewhere.

For ASEAN and the wider Global South, this sector-by-sector thaw provides a crucial lesson. The choice is not binary—between China and the U.S., or between alignment and autonomy. What matters is issue-specific diplomacy, economic diversification, and regulatory harmonization.

ASEAN’s own Digital Economy Framework Agreement (DEFA), its Green Infrastructure initiatives with the EU, and its expanding ties with the Gulf Cooperation Council (GCC) illustrate the logic of strategic modularity—the ability to cooperate on select issues without overcommitting.

The rare earth agreement has not erased all sources of Sino-American tension. But it signals that fishing for solutions beats flailing in a sea of troubles. The challenge now is consistency. Will these agreements be respected, expanded, and made resilient to leadership changes, especially with a potential Trump presidency looming?

For now, the answer lies in the evolving quietude of sectoral realism. It may not generate headlines like summit theatrics or carrier group deployments, but it just might keep the world economy from fracturing—and that, in today’s unstable world, is a strategic victory in itself.

---

** The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the position of Astro AWANI.